What Is After-Repair Value (ARV) In Real Estate?
ARV (after-repair value) is a term used in real estate to describe the value of a property after repairs have been made to fix it up. These are usually considered in conjunction with other factors, such as how much money you’d have to spend on renovations and how long it would take for the house’s market value to go up again. When looking at ARV in real estate, be sure to distinguish it from fair market value (FMV), which estimates what a house would sell for if no repairs were needed.
Why Is it Important?
ARV is a great way to measure the potential of a property. It’s also an important metric when determining if you should invest in a property or sell it.
For example, let’s say you have two houses: one that has been fully renovated and one that hasn’t been renovated. You can use ARV to determine which one is more valuable because the house with no renovations has less value since it will take more time and money to fix up than the other house.
How to Calculate ARV
To calculate ARV, you subtract the cost of repairs from the after-repair value. To do this, you’ll need to know how much it would cost to repair your home. Once you’ve subtracted it from the original price, you’ll have an accurate estimation of what a potential buyer might pay for your house.
Appraise The Property: Appraisals are a one-time process and usually take 30 to 60 days to complete. The appraisal is based on the current market value of comparable properties in the area. The appraisal is an estimate of value, not necessarily what you would sell your house for at auction or what it might cost to buy another home in the area.
To appraise a property, real estate appraisers must start by establishing market value using sales comps—or properties that have recently been sold nearby—as well as rental rates (if applicable), zoning information, and other factors that affect property values such as flood zones or natural disasters that could negatively impact resale values (e.g., hurricane Katrina).
Evaluate The Comparables: The next step is to evaluate the comparables. For example, if you are evaluating a property in your area that has a 2-car garage and potential for expansion, then you need to find out what other properties with those same characteristics sold for recently.
The best way to do this is by using an online database like Trulia or Zillow. You can search by location, size, age, and amenities (such as pools & spas). The important thing here is that comparable properties should also have similar characteristics—meaning they’re not too far away or different in size or age! If there aren’t any comparable sales nearby, then it’s hard for us to know whether our numbers are accurate, so try our best but don’t stress about it too much either way – make sure things look good.
Limitations Of ARV
ARV is not a guarantee of future value. Your property won’t sell for its ARV. Many factors influence the ultimate sale price of any property, and they aren’t always easy to predict in advance—no matter how accurate—of what other people might be willing to pay for it at some point in the future when you’re ready to sell again (or rent out).
Conclusion
You can use ARV to evaluate the value of a property and determine whether or not it’s worth buying. The bottom line is that ARV is not the only way to evaluate a property, but it is an important one. ARV has limitations.